Finances

Let’s talk Business: Money Mistakes Young Entrepreneurs Make ..with Ndungutse Robert Keeping track of your personal finances and launching a business is doubly challenging. Here are seven common personal-finance mistakes that young entrepreneurs make – and how to avoid them. 1. Over investing in the businessTo look more professional, young entrepreneurs may spend their savings too freely. Maybe they lease ritzy offices or purchase high-dollar equipment. Overspending on business expenses that arent absolutely necessary can quickly erode your personal finances. It can be easy to burn through your savings before you even have a product or service to sell. Thats when young entrepreneurs dig themselves deeper in the hole personally.Instead, focus on directing your finances on building a really good product/service and get in front of users. 2. Cutting corners on formalities Most young entrepreneurs will cut corners on legal and accounting advice. Maybe they know an attorney or a finance guy so they ask if they might help them get licensed or take a look at their books. But those moves can backfire. It is better to start off with professional service that will cost you, but guarantee you won’t get into trouble later. 3. Not paying yourselfYoung business owners tend to invest everything they have into their business without getting anything out in form of payment. While this can help keep cash flowing into a business -- not to mention it can be necessary to fund expansion -- it gets tricky when the business is paying your rent and buying you meals. What is recommended instead? Pay yourself at least a modest salary to keep your personal finances straight and separate from the business. 4. Failing to plan for the worst Always plan for the worst. Create a succession plan and some form of insurance to support the business if you cant run it. Johnson recommends setting up a revocable trust -- which, unlike a standard will, helps a company bypass the potentially costly court procedure known as probate and establish whom should run the business in your stead. This would be of immense use if you can’t run your business due to things like disease, or even death. If you have a partnership and a business that cant easily be sold, it’s recommended to establish a buy-sell agreement. This binding agreement governs what happens if a co-owner dies and typically includes an insurance component that provides funding should something happen to either owner. 5. Mixing business and personal assets Leveraging personal assets for business purposes is a personal-finance no-no. using personal assets to secure loans is risky. If the business sours, creditors can go after these personal assets. You should only use the collateral from the business, so, if it goes under, youre not liable personally for the loan. 6. Using personal accounts for business purposesA business should have its own accounts separate and distinct from your personal accounts. This makes keeping track of business finances easier, and tax calculations transparent. For auditing purposes, What if your business ever gets audited? In that instance, youll need to provide a record of your business expenses going back at least three years. Instead, apply for a business credit card and use it only on necessary business expenses. 7. Raiding the company’s coffersIf you have two or three months of good business, young people in particular tend to become overconfident. Being inexperienced, they start spending the businesss cash flow indiscriminately. Perhaps they need cars, so without planning properly, they spend almost everything they have made hoping for an endless run of good business. Financial discipline is what usually separates successful young entrepreneurs from those who fail. Manage your finances well and you stand a good chance of getting your new company off the ground. The Writer is consultant with Maisha Consults Ltd, a Management and Skills Development Firm

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